Working Paper: NBER ID: w31770
Authors: Sebastian Graves; Christopher K. Huckfeldt; Eric T. Swanson
Abstract: Monetary policy is conventionally understood to influence labor demand, with little effect on labor supply. We estimate the response of labor market flows to high-frequency changes in interest rates around FOMC announcements and Fed Chair speeches and find evidence that, in contrast to the consensus view, a contractionary monetary policy shock leads to a significant increase in labor supply: workers reduce the rate at which they quit jobs to non-employment, and non-employed individuals increase their job-seeking behavior. Holding such supply-driven labor market flows constant, the overall decline in employment from a contractionary monetary policy shock becomes twice as large.
Keywords: monetary policy; labor supply; labor demand; employment; job-seeking behavior
JEL Codes: E32; E52; J22; J23; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| contractionary monetary policy shock (E49) | increase in labor supply (J20) |
| contractionary monetary policy shock (E49) | decrease in quits (J63) |
| contractionary monetary policy shock (E49) | increase in job-seeking behavior (J68) |
| decrease in quits (J63) | enhancement of labor supply (J20) |
| contractionary monetary policy shock (E49) | decline in employment (J63) |
| contractionary monetary policy shock (E49) | reduction in quits from employment to nonparticipation (J63) |
| reduction in quits from employment to nonparticipation (J63) | increase in labor supply (J20) |